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CPM Pricing Will Ultimately Put EMSPs Out Of Business March 5, 2008

Posted by Elana Anderson in Customer Analytics, Database Marketing, Marketing, Marketing Technology, Web Analytics.
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After my tirade yesterday against volume-based CPM pricing in the email marketing sector, I was disappointed to see the recent post on Bronto’s blog announcing the vendor’s move towards a volume-based pricing model:

For the last five years, we have priced our clients’ subscriptions by the number of the contacts stored in the application (i.e., list size.) This worked great in the early days because we primarily had small business-to-business customers. As we grew and our business and product became more sophisticated, we attracted more sophisticated clients that send at higher volumes. Since list size mattered less and sending capacity mattered more to them, the model became tougher to match with our clients’ needs and trickier to manage operationally.

My perspective? This may be a way to be competitive in the short term, but ultimately it will put the email service providers (EMSPs) out of business. Simply put, it makes the EMSP nothing more than what I have long referred to as a “dumb pipe” – a platform for bulk pushing out messages. Despite the economic challenges I addressed in my previous post, most (to use Bronto’s words) “sophisticated clients that send at high volumes” are actively working to improve their ability to target and customize their marketing communications in order to increase relevance. As I also noted, this requires tools and the necessary skills to understand and leverage customer data. If the email provider doesn’t provide these tools and services, you can be sure that other providers will be there to fill the gap. Carpe diem.

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Comments»

1. Joe Colopy - March 6, 2008

Appreciate your feedback. I agree that the future for successful ESPs is strong reporting, analytics, and services that go beyond sending. Already you see a strong trend where ESPs are monetizing deliverability services and other premium reporting offerings above sending.

This, however, is not in conflict with CPM-based pricing especially when compared to contact-based / list-sized based pricing (where we were coming from). Providers targeting SMBs price based on list-size because their customer set primarily send email newsletters on a regular basis. Since the volumes are low, it really doesn’t matter if the vendor lets them send 3, 6, or 20 times per month for the same price. This is not true with larger mailers. It matters a lot.

Also, a pricing model based around list size creates a disincentive against segmenting because the customer would pay the same amount regardless of how targeted their campaigns become. CPM pricing makes for better email marketing than volume-based pricing.

The reason that most lower tier providers offer list size based pricing to their customers is because it is easier sell to their customer set that don’t necessarily know their email send volume but definitely know their list size.

You are definitely right that CPM cannot be the end of the story and it will continue to trend downwards for ESPs that do not offer more robust tools and price them so that they have value beyond just sends. As time goes on, I think that you’ll find that the CPM portion becomes a smaller and smaller piece of the overall email marketing contract.

Drop me a note or give me a call and I would be share our insights into pricing and where we see the industry going.

Joe Colopy
CEO of Bronto Software

2. Elana Anderson - March 7, 2008

Joe,
Thanks for your comment and feedback. What struck me as interesting in your feedback was your comment: “CPM pricing makes for better email marketing than volume-based pricing.” I tend to view CPM pricing as volume-based pricing. In fact, in my post, I almost used the terms interchangeably. The way I’ve always seen CPM pricing implemented is: the higher the volume, the lower the CPM… Your point about list size pricing not being an incentive to improve email targeting is also a good point. But, I don’t see either model as providing any incentive to emailers to improve the level of relevance of their communications.

The challenge for EMSPs, like yours, is how you can continue to provide more sophisticated tools to your clients when your back is up against the wall of these pricing models that essentially reward volume mailing.

Elana

3. Matt - July 8, 2008

Elana,
What’s been revealed recently in the new pricing structure by Bronto Software is their new ‘use it or lose it’ email minutes component.

For customers paying quarterly, we must use our allotted email minutes or let them expire like a gallon of milk.

This pricing component provides little incentive to improve email relevance. Not only is it volume-based pricing, it’s now time-based … rush those messages out before the email minutes expire.

Have you seen this with other EMSPs?

Matt

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